{"id":3009,"date":"2020-10-01T12:07:56","date_gmt":"2020-10-01T12:07:56","guid":{"rendered":"https:\/\/www.interventure.info\/?p=3009"},"modified":"2023-09-21T07:10:08","modified_gmt":"2023-09-21T07:10:08","slug":"cost-bad-hire","status":"publish","type":"post","link":"https:\/\/www.interventure.info\/blog\/cost-bad-hire\/","title":{"rendered":"Cost of a bad hire goes beyond financial losses, especially in IT"},"content":{"rendered":"
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Hiring the wrong person can really take a toll on your company. Business people tend to perceive the consequences primarily through financial lenses, which is why the cost of a bad hire remains one of the most dreaded calculations for management.<\/p>\n<\/div>\n\n

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You kind of<\/em> want to see the numbers, but you also really don\u2019t<\/em> want to see the numbers. <\/p>\n<\/div>\n\n

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Bad hires leave a sour taste in the mouth and they can set the team back a bit. That\u2019s why this topic is not a pleasant one. We push it under the rug, we tend to say c\u2019est la vie<\/em> and then jump on the next thing on our task list. Water under the bridge, right? <\/p>\n<\/div>\n\n

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While we agree that you shouldn\u2019t dwell on these setbacks, you shouldn\u2019t turn a blind eye on them either. Looking at the cost of a bad hire and understanding what could have been done differently is ultimately the best way to cope and do better next time.<\/p>\n<\/div>\n\n

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Cost of a bad hire in numbers<\/h2>\n<\/div>\n\n
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Let\u2019s look at the ugly numbers together. According to the Undercover Recruiter<\/a>, the total cost of a bad hire can go up to $240,000. Wow. That\u2019s a lot. This number sums the hiring costs, compensation, and the cost of maintaining an employee. <\/p>\n<\/div>\n\n

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Other sources offer different calculations. For instance, the U.S. Department of Labour reports that a bad hire can cost the company around 30% of that employee\u2019s annual salary<\/a>, which is still quite a figure; especially if you add the salary of the bad hire to the overall calculation.<\/p>\n<\/div>\n\n

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To paint a picture: if the annual salary of your software engineer is $90,000, this means that a bad hire would cost you:<\/p>\n<\/div>\n\n

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0.3 x $90.000 + $90.000 = $117.000<\/p>\n<\/div>\n\n

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For a more precise cost of bad hire calculation, companies tend to check their fiscal year-end financial report to analyze the value that a particular employee brought to the company during his employment.<\/p>\n<\/div>\n\n

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Revenue per employee and the profit margin per hire will give you a more realistic picture of your financial losses, in contrast to looking at the bad hire\u2019s total salary.<\/p>\n<\/div>\n\n

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By breaking down and analyzing the costs, you\u2019ll see how one poor hire creates a domino effect on the entire organization:<\/p>\n<\/div>\n\n\n

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Type of cost<\/strong><\/th> How it affects your company<\/strong><\/th><\/tr><\/thead>
Recruitment<\/strong><\/td>Recruitment costs cover everything from the spent hours of your HR or dedicated recruiter to advertising costs for the job position. This includes creating the job ad, reviewing candidates, conducting interviews, testing them, etc. Bear in mind that the average length of the interview process amounts to almost 25 days<\/a>.<\/td><\/tr>
Onboarding<\/strong><\/td>Onboarding is much more than introducing the employee to procedures, tools, responsibilities, payment dynamics, benefits, etc. It also requires feedback, performance reviews, aligning expectations, and overcoming possible cultural differences. More importantly, onboarding is the opportunity for the company to leave a good first impression, to connect, and to make the newcomer feel welcome. If the onboarding process is too intense, it can lead to employee turnover. Tech and software industry is number one when it comes to turnover rates (13.2%)<\/a>.<\/td><\/tr>
Professional development<\/strong><\/td>Naturally, any IT professional will look for opportunities to professionally grow. Companies that do business in software engineering usually have a dedicated budget for employee training that\u2019s divided into three areas: soft skills, methodologies and technologies, and tools. Lack of growth is the number one reason employees choose to leave<\/a>. <\/td><\/tr>
Team productivity<\/strong><\/td>Whether they are difficult to work with or they lack the necessary expertise, bad hires can drag the team down and negatively impact workflows. In worst-case scenarios, projects are left unfinished or put on hold, which influences both time-to-market and team morale.<\/td><\/tr><\/tbody><\/table><\/figure>\n<\/div><\/div>\n\n\n
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Alas, while you can always recover financially and retrieve the money your company lost due to the bad hire, there is one resource that is impossible to restore.<\/p>\n<\/div>\n\n

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Time – the only resource you can never get back<\/h2>\n<\/div>\n\n
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It\u2019s been over 270 years since Benjamin Franklin wrote the famous aphorism in his essay \u2018Advice to a Young Tradesman\u2019:<\/p>\n<\/div>\n\n

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Time is money.<\/em><\/p>\n<\/div>\n\n

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In the context of the essay, Franklin was actually trying to point out the opportunity of utilizing time well in order to earn more. Given the fact that the essay is meant for young tradesmen, it has a pedagogical tone and well-intended advice: the potential repercussions of doing nothing with your time will cost you.<\/strong><\/p>\n<\/div>\n\n

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So, the aphorism is not just about the necessity of making the most of your time, but it is also a reminder that the time itself is invaluable.<\/p>\n<\/div>\n\n

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In terms of bad hires, there are many intangible costs that cannot be analyzed solely through numbers. For instance:<\/p>\n<\/div>\n\n\n